Table Hopping column: Cuomo wage proposal would stiff servers

I have a columnon the front page of today’s paper arguing that Gov. Andrew Cuomo’s proposal to require restaurant servers be paid a full minimum wage would seriously harm the hospitality industry. Full text follows:

Claiming he’s intent on giving restaurant servers a raise, Gov. Andrew Cuomo would actually be cutting the pay of many and forcing restaurants to close.

That’s the industry’s seemingly unanimous opinion of the governor’s proposal to require that tipped employees — more than 80 percent of whom work in restaurants as servers, as bartenders and in similar positions — be paid the state’s full minimum wage. Although Cuomo and labor-advocacy groups characterize this as a win for workers’ rights and a way to ensure fair pay, I have talked to no one in the restaurant industry, in any position, who believes the proposed change would be anything but hugely damaging. When it was tried in Maine, servers saw their pay drop by a reported 20 percent and mobilized so effectively that the change was repealed.

Currently, state law allows tipped employees to be paid less than the minimum wage as long as tips bring their hourly pay up to the equivalent of the regular minimum. A bill passed by the state Legislature and signed by Cuomo in 2016 pegs tipped workers’ minimum wage at two-thirds of the rate of nontipped employees: Upstate, the regular minimum wage is $10.40 per hour, while the tipped minimum is $7.50. (They’re slightly higher for Long Island and New York City, and all go up at the end of the year.)

But although the 2016 law included language that prohibits changing the tipped wage formula for food service employees for five years, Cuomo in January directed the state Labor Department to hold hearings around New York to explore whether the tipped minimum should be abolished. The fifth of these seven hearings will be held Friday at the Legislative Office Building in Albany. In related news, the Troy location of Slidin’ Dirty, normally open for lunch, will be closed until 5:18 p.m. Friday to allow its staff to participate in a rally opposing the change, management said.

“At the end of day, this is a question of basic fairness,” Cuomo said in December, previewing his proposal. “In New York, we believe in a fair day’s pay for a fair day’s work and that all workers deserve to be treated with dignity and respect. There should be no exception to that fairness and decency.”

Should the state force businesses that employ tipped workers to pay them the full minimum wage — in apparent contravention of a law passed just two years ago — the result would be devastating. Make no mistake: People would lose their jobs, others would leave the industry, and some restaurants would be forced to close.

“The mom-and-pop places like us are really going to get hit hard,” says Beth Alexander, who with her chef-husband, Jasper, owns the venerable Hattie’s Restaurant in Saratoga Springs and its fast-casual offspring, Hattie’s Chicken Shack in Wilton.

The 2016 law boosted the tipped hourly minimum wage from $5 to $7.50. That’s a 50 percent raise the Alexanders say cost their businesses an extra $100,000 a year. If they’re forced to meet the full minimum wage — which next year will go to $11.10 upstate, representing an additional raise, of 39 percent — their outlay will be an additional $125,000 or so as a result of tipped employees’ base pay jumping by 122 percent in three years.

“There wasn’t $100,000 of fluff in our budget the first time around,” Jasper says. “We certainly can’t just absorb $125,000 more in payroll costs.”

They have few options, none desirable. To cover the increase, they estimate they would have to raise prices; a dinner of their signature fried chicken could go up by $4. Customers groused a few years ago when they raised it by a dollar, to $18.95. Were it to suddenly jump by 20 to 25 percent, Beth says, “We’d absolutely hear overwhelming complaints and lose business. People will go to Popeye’s instead.”

If Cuomo’s wage proposal becomes law, the Alexanders are also looking at potentially cutting back on service staff, which might mean customers would order from tablets and have food brought to them.

“That’s not the kind of dining experience our customers expect or want,” says Beth. “Our servers are also ambassadors for Saratoga, recommending a place to hear jazz afterward or get a drink. That personal touch would get lost.”

The nationwide call for abolishing subminimum wages for tipped workers is led by an advocacy group called Restaurant Opportunities Centers United, which produces persuasive publications trumpeting statistics showing that in states like Oregon and California, which have a single minimum wage for all, the restaurant industry is healthier, tipped workers make more money and servers experience less sexual harassment. (Some servers feel they have to put up with unwanted verbal or physical advances or risk losing tips.)

Opponents of the change to a subminimum wage for restaurant servers counter with the example of Maine, which abolished a lower minimum wage for tipped workers in 2016 but reinstituted it a year later. The New York Restaurant Association, in material arguing against Cuomo’s proposal, says that Maine’s tipped workers saw their take-home pay drop by 20 percent after the minimum-wage law was changed.

“Minimum wage” is almost comically misleading when it comes to discussion of restaurant servers’ pay. They’re among the most highly compensated employees in the hospitality industry, averaging — at even midpriced dining spots — the equivalent of $20 to $40 per hour when tips are factored in. The Alexanders say their servers make the equivalent of $25 per hour year-round, and during the track season the most industrious servers can pull in $50 per hour or more on the best nights. In Albany, at Yono’s restaurant and its sibling, dp: An American Brasserie, servers’ pay averages the equivalent of from $25 to $40 per hour, says co-owner Dominick Purnomo, and expert servers at the area’s priciest restaurants have on occasion topped six figures annually.

Josh Banks, who has been a server at Yono’s for almost six years, opposes the elimination of a subminimum wage for tipped workers. Banks, who says he averages at least $23 to $25 per hour, fears that such a change would result in higher prices, fewer customers, smaller tips and less flexibility, because his employer would be disinclined to give him extra hours at the higher minimum wage.

Speaking of ROC and other change proponents, Banks says, “They give the impression that we’re living in poverty and we need this help, but that’s not the case. … I’ve looked at the numbers, and I feel it would definitely affect my income negatively.” His opinion is reflective of the views of dozens of servers I’ve discussed this issue with in recent months.

Purnomo attributes Cuomo’s motives to governmental avarice, not concern for workers. He gives an example of a $10 burger, on which the government gets 80 cents in sales tax. Were the subminimum wage to be abolished, Purnomo says, he would have to charge at least $12 for the burger (96 cents to the government), and he’d be paying more than double the payroll tax he was two and a half years ago — on wages of $11.10 an hour versus $5.

“This proposal has nothing to do with helping the restaurant workers in the Empire State,” Purnomo says via email. “It’s purely about unabashed greed in the Capitol and unapologetically reaching further into the already stressed pockets of hard-working people so that Gov. Cuomo can continue to frivolously spend the hard-earned dollars of New Yorkers.”

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By the numbers

Jason Pierce, co-owner of Savoy Taproom in Albany, wrote a post on Facebook examining the ramifications of abolishing a lower minimum wage for restaurant servers. His examples are used with permission.

A hypothetical Savoy server works 35 hours a week and averages $100 per hour in food and drink sales. Total: $3,500

Average profit for the restaurant, using industry standard of 6 percent: $210

That leaves $3,290. Of that, according to Pierce, $890 goes to pay kitchen staff, and $987 pays server, bartender, host/hostess and other front-of house staff. The remaining $1,413 is for rent, utilities, insurance and a variety of other fixed and variable costs.

If required to pay full minimum wage, the restaurant would owe the server an additional $125 weekly, plus another $50 per week to account for the wage increases to bartender and busser, a portion of whose time is devoted the servers’ tables. That leaves a profit of $35, or 1 percent.

21 Responses

Seems to be a problem with those numbers given. Since the server’s wage is going up by $3.60 per hour (plus a small amount for the payroll tax), unless that server is only serving ONE customer (not table, one single person ordering) per hour there is no reason to cover that whole increase from ONE meal (which is what they are suggesting, raising the price of a dinner by $4).

This happens every time a similar issue is mentioned – when it was the $15/hour for fast food people suggested a sandwich would cost $10 (which also makes no sense unless it was already near that to start).

If Cuomo wanted to help hospitality industry folks he’d find a way to provide them with healthcare and other essential benefits that are currently beyond the reach of employees and owners. If no one in the industry is advocating for this change, it’s hard to believe that that is who will ultimately profit from such dramatic changes to the pay structure.

First, the sales given are for one server yet all expenses are being taken from just those sales! Yes, it would be very hard to be profitable if you have sales of $3500/week with 57% labor cost.

Next, 6% is a pathetic profit indicative of a poorly run restaurant. If that number truly is the industry average, it illustrates that many people that shouldn’t be in business choose to be restaurateurs. The barrier to entry is very low in this business: anybody with first and last months’ rent and a belief that they can cook can join.

$100/hour/server is another indication of an ill restaurant. The place is either not very busy or overstaffed. $150-$200/hour/server is more typical of a healthy establishment.

I’m ambivalent about the elimination of the tipped wage. Servers at well-run restaurants make plenty of money already. I can see how higher labor cost will hurt marginal restaurants and thus cost jobs. On the other hand, by culling the weak members of the herd, there will be more (much needed) talent for the surviving restaurants to employ. At the end of the day, the worst employees may find themselves out of work but the best will be even better off.

I also have to ask why we expect the restaurant industry to be exempt from the same labor laws the rest of American business has to follow?

Cuomo wants to take away tips to increase tax revenue. Many service workers (not all) often pocket cash tips without declaring the income on their taxes. By taking away tips and increasing wages, Cuomo is able to increase his tax revenue.

This is false! Servers are required by law to claim a certain percentage of their sales for the shift they work. When I worked in the front of the house, it was 10%. The employer is required by law to report that amount. No, they don’t have to claim 15%. Many do claim that though. Doesn’t matter if tips are in cash or on a credit card. There’s a record and they have to be reported to the state. Your credit card tips, you are required to claim 100% of what was given to you. Most restaurants have a POS system today and it tracks all of these things. There’s not much money escaping the coffers of NYS. Heaven forbid, Andy misses out on 12 cents. This state is incredibly overtaxed.

Just since minimum wage has been skyrocketing in NY and the restaurant pay increases along for the ride, I’ve watched menu prices also skyrocket. Honestly, I eat far less often at places with servers. If I’m paying $15+ for literally a plate of spaghetti and 2 meatballs plus tax and tip, then I’m really not going to be eating out much at places with servers.

I totally understand that there are dozens of costs that we as diners don’t see. Just the taxes and insurance can kill a business quickly. Forget about things like rent/mortgage, utilities, water/sewer, etc. Food costs have also been increasing along with those pesky delivery surcharges.

I worked in the restaurant industry several ago and even back then when we were paid $2.13 an hour, I didn’t know a single soul who had to be paid by the restaurant to make their hourly rate minimum wage. Most of us earned far more than anyone else on staff. There were folks who earned more in tips than the managers were paid!

These wage increases are just hurting the industry. I’ve seen several restaurants close up with each wage increase. I’ve spoken with several local restaurant owners who are also having a hard time keeping servers on staff today. The restaurant industry is an incredibly tough business to be in. Surviving nowadays is almost impossible.

While the restaurants will be hit with higher wage costs, this should be passed onto customers in the form of higher prices for meals (as wage cots are in every other retail business). People will just have to get used to paying the true cost of their dinner. I personally do not mind paying more for a dinner if I know my server is making at least the full minimum wage. I would likely still tip, but at a lesser rate. This system seems to work in other parts of the world, like Europe, where tipping is not as pervasive as here in the US. Also, a percentage of tips are likely not taxed, because they are cash. This would help to address that.I frankly think this proposal is a good idea. It will likely cause problems for some restaurants at first as they adjust to the higher costs, but they will figure it out, and I think the alarm about many restaurants going out of business is unfounded.

This is clearly a disruptive proposal. But one of the questions we should be asking in deciding whether we’re going to upend the system is whether the system reflects the true value of the service, i.e., should food servers and bartenders really be making $50k (or a $100k) a year?

I waited tables in college and quickly realized what a perfect job it was for a college student – great wage $25+/hour and flexible hours. There’s literally no other job – drug dealer? – where an unskilled worker can be so well compensated.

And while I always tip well, and would want the same opportunity if I were back in college, why is the pay so outscale with other low skill jobs? Or worse yet than many skilled jobs?

The customer subsidized wage model is clearly rife with its own issues, but at 20%+ we’re oversubsidizing in many cases. If we did away with tipping and rightsized the wage model to recognize the true value of the service and incorporated that new wage into the menu price, we’d be at a more standard and in my mind better place.

Waitron, do you really believe serving is a no-skill or low-skill endeavor? The best servers I know can take an order from a big top without writing anything down. They know their product and can sell it well. They can handle difficult customers with grace and they can make it easy to run a restaurant. Servers are the face of the business, the sales force of the restaurant. There should be a lot expected of them and compensation should be appropriate.

All that aside, as I stated earlier I am ambivalent about the increased tipped wage. There are valid arguments on each side of the issue but I do believe Cuomo is just doing this for political gain. I fully agree with Lilly’s comment that offering health insurance so that employers don’t have to would be a better way to illustrate a sincere desire to help restaurant workers (and owners).

All jobs involve skill…the question of what the value of those skills is is generally market driven, i.e. a supply and demand proposition. To the extent that there’s no barrier to entry into the service industry – no special training, the skills can be found in the general population -I think it’s fair to ask how we got to a place where servers are making a wage that’s in excess of teachers, public defenders, EMTs, electricians, cooks in the same restaurants…

The answer is that we’ve ingrained a falsehood into the wage system. The falsehood is that 20% of the value of food sold/served equals the delta between the paid wage and a reasonable wage. It’s arbitrary and distorts market realities in ways people don’t often think about. The service industry is the largest industry in which this wage model is utilized, and it obscures the true economics of the system, both in the employee wages and in food prices.

The truth of it is that – based on a comparison to market driven wages in other sectors of the economy – diners end up oversubsidizing the wage of front of the house employees (see above..teachers, EMTs, public defender…). If the wages were employer paid and market driven like most other industries, instead of obscured through this archaic, nonsensical model, a $15-$18 wage would suffice to fill the rosters and provide the same level of service at 90% of table service restaurants. Employers would make up the additional ~$10 hour over the tipped wage minimum thorough rationalized menu prices – which would be less expensive than the current X+20%. Customers would of course be welcome to provide any gratuity they deemed appropriate.

While this is the current policy question being debated, in my mind, it’s the best reason to abolish the tipped wage.

Other ways to rationalize: a 10% tip; increasing the wages of all the other skilled workers mentioned above.

Well I happen to agree with Steve and those in the restaurant and service industry! This is self serving for the State and a disservice to the industry both the restaurants and their servers. Also the customers.

Why not ask the professional/career bartenders and servers what they think? I believe that they like working for tips and make more money than if they worked for minimum wage. They don’t get pensions or insurance through their employers either.

I say that the real problem is that the “minimum” wage is not a “living wage”

IN AMERICA, if you work for someone 40 hours a week, you should be paid enough to afford a place to live within 30 minutes of your workplace, food, incidentals, discretionary money, and cover all taxes. If your company CANNOT provide that to full-time employees, you have failed This Nation, and we don’t need you.

@Mike Lieman, if you and everybody else are ready to pay $40 for a hamburger, then restaurants in NYC, SF, LA, etc. would be able to afford to pay employees a “living wage” in those cities. Self righteousness is easy from behind a computer.

Once again, the silly numbers show up. How much does one pay for that hamburger today? Then add the amount of tip. If one were to simply add the tip amount to the cost of the burger that’s the number you are looking for (since it seems most suggest that servers make a “living wage” now when tips are included).

Just up the menu price to allow the pay rate to equal what they get now with tips and it ends all of this, just makes it clear up front what the cost is (rather than seeing one price and having to calculate the real cost after the tipping is added).

Isn’t it interesting that the same people who vociferously object to the notion of the minimum wage being an actual “living wage” are the same people who rail against overly high taxes?

The irony is that what our taxes DO pay for are, among other things, immense subsidies to the beef and dairy industries, without which our burgers might ALREADY be $40 or $50 or more. And who are the real beneficiaries of these subsidies? The corporate owners and executives of the agribusinesses that DIRECTLY benefit from the subsidies.

So clearly these people would rather pay higher taxes so that billionaires (like the owners of Cargill and Tyson and so on) can become richer still, while turning a blind eye to the fact that they’re already paying a lot more for their burgers than the menu prices reflect.